Gold Continuing to Shine Globally
It is good for people to own some physical gold. This precious metal is a good investment when the economy is good and gold-hungry countries like India and China buy more gold. It is also good to own when the world is going through asset bubbles that are bursting, wars, financial crises, etc – gold can act as insurance in times of such turmoil. The gold market has gone through a lot of changes in the last decade.
Most gold investors know about gold confiscation in the U.S and how America summarily did away with the gold standard. What most people don’t know is that one of the largest gold buyers, China has gone through a period where ownership of gold by private citizens was banned between 1950 after the communist revolution until 2004.
The rise in the gold price rose in the early 2000 just as China was experiencing its own economic growth and its re-entry into the global gold market.
China’s economic revolution isn’t the only contributing to the rise of gold price. In 1999, just 19 years after the 1980 gold bubble, the UK Finance Minister, Gordon Brown prematurely announce UK’s plan to sell its gold reserves. When this happened, gold traders began to sell gold short. The gold price dropped to $252 in July of 1999. Twenty years later, this precious metal is trading at $1,788 – seven times the price it was at the turn of the century.
You would think that people should have bought more gold during that period but in 1999, everyone was preoccupied with Y2K and were caught up in the tech bubble. So, instead of buying more gold, people were buying more stocks. What we can learn from 1999 is that market mob mentality isn’t always the best mentality to adopt.
Over the last couple of years it has become easier to invest in gold. It is not something that is solely done by bankers and professional traders, these days there are a number services that make it easy for ordinary fold to participate in the gold trade. In addition to that, people not only view as adornment but more people know that the gold jewellery they buy for themselves or for others can be sold for cash in times of need.
Back in the 90s and early 2000s, it made more sense for people to invest in things like treasury bonds that were almost always guaranteed to yield about 5% instead of assets like gold that does not have any yield. That was probably what the likes of Gordon Brown thought. However, things have changed, even the bastions of wealth preservation, the Swiss bankers advocate that a health investment portfolio should have at least 5% allocated to gold. One could say, a lot of people learnt a lot after the 2008 financial crisis but still most people don’t have as much gold as they should. However, there is evidence that some developed countries are taking gold more into their hearts and individuals.
Germany is one of those countries that have taken a notable shine to the yellow metal. Even the World Gold Council has noted the radical transformation that Germany has gone through as far as gold is concerned. With the global mined gold production at 3,000 tonnes a year, one should take note of a country that suddenly needs 100 to 200 tonnes of gold a year. Germany buys twice the amount of gold that Americans and the Chinese buy and their appetite for it seems to only be growing, not waning.
And then came the Russians. People in Russia and other Baltic countries buy gold as much as they sell it. Russia has increased the volume of its gold reserved by 4.5 since 2006 and the country even bought more gold during the 2018 crisis. China was doing the same thing until the Coronavirus Pandemic. So far, the countries mentioned here have been the primary sources of demand. However, there are more countries increasing their gold demand and a growing number of private individuals who are becoming more aware of the importance of owning gold.
